ISSUES

i) Whether the DGFT Guidelines were unambiguous about the date of initiation of
the policy?
ii) Whether the rule of Contra Proferendum would apply?

MEMORIAL FOR THE RESPONDENT

ISSUE 1: WHETHER THE DGFT GUIDELINES WERE AMBIGUOUS ABOUT THE
DATE OF INITIATION OF THE POLICY?

DGFT as the statutory body for regulation and promotion of foreign trade, had formulated the
DGFT Guidelines to provide a legal framework to the Foreign Trade Policy 2009-2014 as
envisioned by the Ministry of Commerce and Industry, Government of India. It was
empowered to do so under Section 5 of the Foreign Trade (Development and Regulation)
Act, 1992:

“5. Foreign Trade Policy.—The Central Government may, from time to time,
formulate and announce, by notification in the Official Gazette, the foreign trade
policy and may also, in like manner, amend that policy:
Provided that the Central Government may direct that, in respect of the Special
Economic Zones, the foreign trade policy shall apply to the goods, services and
technology with such exceptions, modifications and adaptations, as may be specified
by it by notification in the Official Gazette.”

The Respondent, being a government insurance company specifically providing coverage for
exports, had to thus abide by the DGFT Guidelines, including the definitions contained in
them.

On an application of the definition of date of ‘despatch / shipment’ under the DGFT

Guidelines, it was clear that the date to be construed was 13.12.2012, which was a day prior
to the effective date of the Policy.

In the case of Polymat India (P) Ltd. v. National Insurance Co. Ltd1, the Court held that

“Therefore, the terms of the contract have to be construed strictly without altering the
nature of the contract as it may affect the interest of parties adversely”.

1
Polymat India (P) Ltd. v. National Insurance Co. Ltd; (2005) 9 SCC 174, para 21
It is thus contended by the Respondents that coverage was denied on a contextual
interpretation of the term. The court could not alter the interpretation of terms of the policy
by reading in something which did not exist.

In the case of Export Credit Guarantee Corporation of India Ltd. v. Garg Sons
International2, denying the application of contra proferentem where the insurance contract
clearly specified that any default on part of a foreign buyer had to be brought to the
respondent’s attention within a specified time period, it was held as below:

“Thus, it is not permissible for the court to substitute the terms of the contract itself,
under the garb of construing terms incorporated in the agreement of insurance. No
exceptions can be made on the ground of equity. The liberal attitude adopted by the
court, by way of which it interferes in the terms of an insurance agreement, is not
permitted. The same must certainly not be extended to the extent of substituting words
that were never intended to form a part of the agreement”.

And further:

“The insured cannot claim anything more than what is covered by the insurance
policy. The terms of the contract have to be construed strictly, without altering the
nature of the contract as the same may affect the interests of the parties adversely.”

ISSUE 2: WHETHER THE RULE OF CONTRA PROFERENDUM WOULD APPLY?

It is the primary contention of the Respondent that the rule of Contra Proferendum would not
apply to the Respondents.

In the cases of Oriental Insurance Co. Ltd. v. Sony Cheriyan 3, Polymat India (P) Ltd. v.
National Insurance Co. Ltd.4, Sumitomo Heavy Industries Ltd. v. ONGC Ltd.5 and Rashtriya
Ispat Nigam Ltd. v. Dewan Chand Ram Saran6 it was held that, the rule of Contra
Proferentem should not apply in case of commercial contracts, for the reason that a clause in
a commercial contract is bilateral and has mutually been agreed upon.

Reconciliation of ambiguous terms in commercial contracts has been a contentious issue

across jurisdictions. A 2011 decision by the Supreme Court of the United Kingdom in Rainy
Sky SA v Kookmin Bank7 was concerned with the interpretation of refund guarantees given by
a ship builder to the buyers, and whether the same was triggered when the ship builder started
facing financial difficulties and was subjected to a debt workout procedure. Allowing the
appeal, the UK Supreme Court provided the guiding principle for resolution of such
ambiguity, keeping the ‘business common sense’ as central:

2
Export Credit Guarantee Corpn. of India Ltd. v. Garg Sons International; (2014) 1 SCC 686, para 13
3
Oriental Insurance Co. Ltd. v. Sony Cheriyan; [(1999) 6 SCC 451]
4
Polymat India (P) Ltd. v. National Insurance Co. Ltd; [(2005) 9 SCC 174] 
5
Sumitomo Heavy Industries Ltd. v. ONGC Ltd; [(2010) 11 SCC 296]
6
 Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran; [(2012) 5 SCC 306].)
7
Rainy Sky SA v Kookmin Bank; [2011] UKSC 50, para 21
 “The language used by the parties will often have more than one potential meaning. I
would accept the submission made on behalf of the appellants that the exercise of
construction is essentially one unitary exercise in which the court must consider the
language used and ascertain what a reasonable person, that is a person who has all
the background knowledge which would reasonably have been available to the
parties in the situation in which they were at the time of the contract would have
understood the parties to have meant. In doing so, the court must have regard to all
the relevant surrounding circumstances. If there are two possible constructions, the
court is entitled to prefer the construction which is consistent with business common
sense and to reject the other.”

This principle was further developed by the UK Supreme Court in Arnold v Britton8 The facts
were that a 99-year lease specified that service charge of £90 levied every year was subject to
10% increase annually. The lessees submitted that by the end of the lease agreement, the
service charge payable would be very high, exceeding the cost of providing the services. The
UK Supreme Court refused to depart from the natural meaning of the clause, holding that:

“When interpreting a written contract, the court is concerned to identify the intention
of the parties by reference to "what a reasonable person having all the background
knowledge which would have been available to the parties would have understood
them to be using the language in the contract to mean. That meaning has to be
assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any
other relevant provisions of the lease, (iii) the overall purpose of the clause and the
lease, (iv) the facts and circumstances known or assumed by the parties at the time
that the document was executed, and (v) commercial common sense, but (vi)
disregarding subjective evidence of any party's intentions”

Thus, a decisive method was suggested to construe the ambiguity of a term used in a
commercial contract. This was applied by the UK Supreme Court in Woods v Capita
Insurance.

The facts in brief are that the buyer of an insurance company relied on an indemnity clause to
recover losses paid in the form of compensation to the customers of the insurance company to
which the company has mis-sold products. According to the indemnity clause, any complaint
to the Financial Services Authority would be indemnified by the buyer. However, the
contract did not clearly specify what would happen if the company itself raised a complaint
before the FSA. The UK Supreme Court held that a literalist approach to resolving ambiguity
in a commercial contract term would yield incorrect results, and a holistic reading was
imperative to ascertain meaning of terms agreed to by parties. Dismissing the appeal, the UK
Supreme Court finally held that the indemnity clause was in addition to the wide-ranging
warranties specified elsewhere in the contract, which was not contrary to business common
sense. The agreement might have become a poor bargain for the buyer, but it was not the
Court's function to improve that bargain:

8
Arnold v Britton; [2015] UKSC 36, para 15
“The court's task is to ascertain the objective meaning of the language which the
parties have chosen to express their agreement. It has long been accepted that this is
not a literalist exercise focused solely on a parsing of the wording of the particular
clause but that the court must consider the contract as a whole and, depending on the
nature, formality and quality of drafting of the contract, give more or less weight to
elements of the wider context in reaching its view as to that objective meaning.”